Oil prices set to add fuel to the recession?

OPEC is about to cut oil production again, or at least that is the rumor. According to the Associated Press, "Oil prices rose to above $46 a barrel Monday in Asia as investors anticipated another OPEC production cut will shrink global supplies."

When three production cuts did not help move oil prices up late last year, the cartel was faced with the humiliation that it could not affect crude by taking decisive action. The need for oil was simply dropping too fast to allow the cut in supply to mean much. Oil prices fell toward $30.

The trouble with low-priced oil, at least for OPEC members, is that member countries cannot support their own national budgets. The ability to build out infrastructure and raise wages to improve their economies is undermined. Venezuela and Iran, both essentially dictatorships, have lobbied hard to get crude prices back up again. Their case is that their economies will fall apart if oil stays at current levels.

As the recession deepens, rising oil prices are becoming a real threat to making damaged economies worse. OPEC's need to help its members runs against almost all of the interests of oil-consuming nations, especially the US, UK, Japan, and nations in the EU. A big move up would mean energy costs would further harm the finances of already struggling consumers and businesses.

Crude prices have not been much of a factor as the recession has deepened, but that may be about to change.

Douglas A. McIntyre is an editor at 24/7 Wall St.


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